Investing in irrational markets
Hock's Viewpoint - By Choong Khuat Hock
The financial crisis reflects the fallacy of the ‘efficient market hypothesis’
IT is amazing that economic theories still consider that markets are governed by the “efficient market hypothesis” (EMH), which assumes rational investors, an orderly market and that all available information are known.
The global financial crisis reflects the fallacy of EMH and textbooks should be revised to reflect this.
In reality, markets reflect the nature of its creators and participants – a collection of human beings who would like to think they are rational but are often enough irrational and emotional.
Quantitative models often fail to model the irrationality of human behaviour during extreme times.
Blind reliance on such models was also the reason why Long-Term Capital Management (LTCM, which had Nobel Prize-winning economists) failed as the restructuring of defaulting bonds in Russia in 1998 caused volatilities beyond what was predicted by quant models.
The extremely high leverage utilised by LTCM hastened its demise. Alan Greenspan had to engineer a rescue as the failure of LTCM threatened to damage the markets and market participants.
One way of valuing securities is to use the discounted cash flow model, which is to discount the expected future cash flows to obtain the present value.
http://biz.thestar.com.my/archives/2010/1/18/business/p6-brain.JPG
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
However, in many cases, future cash flows are difficult to predict and the discount rate used would fluctuate depending on the prevailing interest rates and the perception of risk which may vary from person to person.
This method is more useful in valuing businesses or securities with predictable cash flows like utility stocks where cash flows are stable and funding costs have been determined. Another popular valuation method is to compare securities with its peers.
Such comparisons are ingrained in the nature of human beings as we can only determine the value or utility of something by comparing it to another. Shall I buy the latest Samsung or Sony LCD TV? How does a BlackBerry compare with an iPhone?
Similarly, if the price-earnings ratio (PER) of a stock is 10 times and the sector PER is 20 times, it may be considered cheap if specific company factors are attractive.
Using sector PER as valuation anchor is fraught with danger as the sector valuation may be unreasonable.
Such comparisons may not reflect the value of potential cash flows from an investment. At the height of the dot.com bubble, valuations were based on price to sales with no consideration placed on cash flow.
The prevailing belief then was that there was a sucker willing to pay a higher price to sales for the business.
The same happened during the debt fueled property bubble in the US when rental yields from property could not cover mortgage payments.
Banks were willing to provide 100% financing to those who could not afford houses based on the assumption that property prices could only go up and mortgage loans could be repackaged into much sought after high yielding subprime securities.
Behavioural finance has many theories to explain why humans are often irrational but the reality is that irrationality is hardwired into our brains.
The brain can be divided into two parts – the hypothalamus, or primal brain, (a few hundred million years old) which directs our instinctive behaviour and the neo-cortex, or new brain, (a few million years old) which facilitates logical deductions, learning from experience, language and complex social interactions.
In times of panic, the hypothalamus takes over and markets tend to overshoot on the downside due to panic selling.
Since these moves are often irrational, the movements tend to be many standard deviations more than what is predicted by a normal distribution curve, creating black swan events.
Faced with an avalanche of incomplete information, humans use heuristics, a simplification process to arrive at a decision based on their past experiences and prejudices.
In arriving at a rule of thumb valuation, anchoring is employed by imputing a fair value to the initial entry level even if the entry level is high.
Therefore, in a rising property market, anchoring may result in the belief that the price appreciation will continue.
A bubble can thus form as the herd is blinded by cognitive dissonance whereby investors pay credence only to views and opinions that reinforce their beliefs. However when the discrepancy between fantasy and reality becomes too large, the bubble bursts.
Investment is hence as much an art as it is science. In the final analysis, it is the cash flow that counts.
The science would be in accurately determining the cash flow but the art lies in determining how much investors are willing to pay for the cash flows.
Identifying periods of over pessimism and optimism would help in determining entry and exit points.
In the end, the advantage lies in accurately predicting beforehand where the herd is heading. Understanding the animal in you and others could indeed be a profitableproposition.
# Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang Sdn Bhd.
Monday, January 18, 2010
Sunday, January 17, 2010
Alibaba says Yahoo 'reckless' on Google stance
Alibaba says Yahoo 'reckless' on Google stance
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
January 16, 2010 Alibaba says Yahoo 'reckless' on Google stance (AP)
(AP) -- China's e-commerce giant Alibaba turned on major shareholder Yahoo Inc. on Saturday, calling the American company's support of Google in its standoff with China "reckless."
Google has promised to stop censoring its search results in China, threatening to pull out of the country altogether if it can't operate an unfiltered search engine. Yahoo has said it was "aligned" with Google's position, though it's not clear what that means.
"Alibaba Group has communicated to Yahoo! that Yahoo's statement that it is 'aligned' with the position Google took last week was reckless given the lack of facts in evidence," Alibaba spokesman John Spelich said Saturday. "Alibaba doesn't share this view."
Yahoo closed its own offices in China several years ago when it sold much of its business there to the Alibaba Group. Yahoo retains a 39 percent stake in Alibaba that represents one of Yahoo's most valuable assets.
Yahoo spokeswoman Nina Blackwell has declined to say whether the company would consider selling its holdings.
Google hopes it can persuade the Chinese government to agree to changes that would enable its China-based Google.cn site to show uncensored search results.
A Google spokeswoman, Jessica Powell, said by e-mail Saturday that Google has not closed its offices in China and that "it's business as usual."
Google's threat to end its China operations has alarmed an Internet-connected public that is the world's largest at 384 million people.
Beijing requires Internet traffic to pass through government-controlled gateways that block access to material deemed subversive or pornographic. Google's China-based site excludes from its results any foreign Web sites to which access is blocked.
©2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Baidu Bulls Hit The Options Hard
Baidu Bulls Hit The Options Hard
Andrew Wilkinson, Interactive Brokers, 01.16.10, 11:05 AM EST
Buying call options on Baidu has created life-changing wealth in the past year for some investors. The fervor for shares is still strong.
Baidu ( BIDU - news - people ): Bullish investors continue to trade January contract calls and puts on the Chinese language Internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse ( CS - news - people ) anticipate Google ( GOOG - news - people ) may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one-third of the U.S. company's market share there. Shares of BIDU traded 0.75% higher to $467.86 around noon Friday.
Baidu bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470 level. Investors long the calls break even if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike, where 2,000 calls were picked up for an average premium of 48 cents per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid.
Optimism is apparent on the put side as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU's share price trades below the $470 strike price through expiration.
Jim Oberweis told his subscribers to buy Baidu at $79 and told them to buy more at $110 in early 2009. Click here for Oberweis' current advice and access to the complete model portfolio in the Oberweis Report.
Alcoa ( AA - news - people ): Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of 51 cents per contract. The large bullish stance positions the trader to amass profits if Alcoa's shares surge more than 31.5% over the current price to surpass the break-even point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.
Sprint Nextel ( S - news - people ): Shares of the wireless communications company were trading 1.9% higher Friday to $3.76. Options activity in the August contract indicates that one investor is positioning for a significant rally in shares of the underlying stock in the next seven months to expiration.
It looks like the trader purchased 15,000 calls at the August $7 strike for a premium of 12 cents per contract. Profits on the calls accrue if Sprint's share price jumps 87% from the current level to surpass the break-even point at $7.12 by August expiration. On trades like this it's less likely that the investor has an eye on the strike price as a target price, but uses a larger amount of relatively inexpensive call options to play out a directional play on the underlying stock. In this case the delta on the $7 call option indicates a 15% chance that Sprint's shares will land in-the-money at expiration, while gamma tells us that a $1 rally to $4.80 (an increase of 26%) would shorten those odds to 28%. We note that shares have not traded above $7 since Sept. 19, 2008.
Pfizer ( PFE - news - people ): It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract Friday. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of 43 cents per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of 28 cents each. The calendar roll results in a net credit to the investor of about 15 cents per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets 15 cents per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer's shares slip beneath the break-even point at $18.94 by expiration next month.
Pfizer has a fat 3.7% yield, but is Merck, with a 3.9% yield, your better buy in pharmaceutical stocks? Click here to check ratings on hundreds of dividend-paying stocks in Investment Quality Trends.
CurrencyShares Euro Trust ( FXE - news - people ): With the euro under pressure Friday as Greek bond yields rise--indicative of rising Eurozone tensions--it appears one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it's currently trading at $1.438, would be indicative of a huge slide of confidence in the Eurozone.
Andrew Wilkinson is senior market analyst at Greenwich, Conn.-based Interactive Brokers. Reach him via e-mail: ibanalyst@interactivebrokers.com.
Andrew Wilkinson, Interactive Brokers, 01.16.10, 11:05 AM EST
Buying call options on Baidu has created life-changing wealth in the past year for some investors. The fervor for shares is still strong.
Baidu ( BIDU - news - people ): Bullish investors continue to trade January contract calls and puts on the Chinese language Internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse ( CS - news - people ) anticipate Google ( GOOG - news - people ) may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one-third of the U.S. company's market share there. Shares of BIDU traded 0.75% higher to $467.86 around noon Friday.
Baidu bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470 level. Investors long the calls break even if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike, where 2,000 calls were picked up for an average premium of 48 cents per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid.
Optimism is apparent on the put side as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU's share price trades below the $470 strike price through expiration.
Jim Oberweis told his subscribers to buy Baidu at $79 and told them to buy more at $110 in early 2009. Click here for Oberweis' current advice and access to the complete model portfolio in the Oberweis Report.
Alcoa ( AA - news - people ): Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of 51 cents per contract. The large bullish stance positions the trader to amass profits if Alcoa's shares surge more than 31.5% over the current price to surpass the break-even point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.
Sprint Nextel ( S - news - people ): Shares of the wireless communications company were trading 1.9% higher Friday to $3.76. Options activity in the August contract indicates that one investor is positioning for a significant rally in shares of the underlying stock in the next seven months to expiration.
It looks like the trader purchased 15,000 calls at the August $7 strike for a premium of 12 cents per contract. Profits on the calls accrue if Sprint's share price jumps 87% from the current level to surpass the break-even point at $7.12 by August expiration. On trades like this it's less likely that the investor has an eye on the strike price as a target price, but uses a larger amount of relatively inexpensive call options to play out a directional play on the underlying stock. In this case the delta on the $7 call option indicates a 15% chance that Sprint's shares will land in-the-money at expiration, while gamma tells us that a $1 rally to $4.80 (an increase of 26%) would shorten those odds to 28%. We note that shares have not traded above $7 since Sept. 19, 2008.
Pfizer ( PFE - news - people ): It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract Friday. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of 43 cents per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of 28 cents each. The calendar roll results in a net credit to the investor of about 15 cents per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets 15 cents per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer's shares slip beneath the break-even point at $18.94 by expiration next month.
Pfizer has a fat 3.7% yield, but is Merck, with a 3.9% yield, your better buy in pharmaceutical stocks? Click here to check ratings on hundreds of dividend-paying stocks in Investment Quality Trends.
CurrencyShares Euro Trust ( FXE - news - people ): With the euro under pressure Friday as Greek bond yields rise--indicative of rising Eurozone tensions--it appears one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it's currently trading at $1.438, would be indicative of a huge slide of confidence in the Eurozone.
Andrew Wilkinson is senior market analyst at Greenwich, Conn.-based Interactive Brokers. Reach him via e-mail: ibanalyst@interactivebrokers.com.
Saturday, January 16, 2010
Intercontinental Grid Computing: Europe and China Link Up for Research
Intercontinental Grid Computing: Europe and China Link Up for Research
ScienceDaily (Jan. 15, 2010) — Grid computing can jet-propel research and development. An EU-funded programme that lets European and Chinese grids work together has already produced results in aircraft design, drug development and weather prediction.
In 2007, the EU-funded project, BRIDGE (for Bilateral Research and Industrial development enhancing and integrating Grid Enabled technologies -- see: http://www.bridge-grid.eu/), set out to link European and Chinese computing grids and enable researchers to carry out joint research.
The project was inspired by the realisation that China is rapidly becoming a world leader in research and development, as well as a booming market for European products. Developing the infrastructure to link computing grids was seen as a key step towards future scientific and industrial cooperation.
"If Europe does not want to lose ground, the response can only be to synchronise with these developments," says Gilbert Kalb, BRIDGE project coordinator.
Building a shared infrastructure
The BRIDGE team's first challenge was to make the software systems that manage the European and Chinese grids compatible. The European Grid infrastructure, GRIA, and the Chinese system, CNGrid GOS, provide comparable services, but are organised differently.
The team were able to get GRIA and GOS to work together by building a new software superstructure to access them and tap their capabilities. The system included new gateways into the two grids, plus a shared platform to manage overall workflow, access needed applications, and translate higher-level commands into steps that each grid could carry out.
Not surprisingly, security was an important consideration on both sides. Kalb says that many or the scientific and industrial problems that BRIDGE was developed to address require intensive cooperation, yet involve highly sensitive information.
BRIDGE resolved this issue by letting selected processes remain private. That allows one group to contribute data or results to all collaborating parties without having to share proprietary software or analytic tools.
"You can interface in terms of the input and the output, while the algorithms remain hidden," says Kalb.
Putting BRIDGE to work
The BRIDGE team tested the intercontinental grid they built by attacking three problems, each of which made different demands on the system.
Discovering new drugs remains an extremely costly process. One way to speed research is to use computers to simulate the chemical fit between millions of small molecules and proteins that play vital roles in disease-causing organisms. A molecule that binds strongly to a key protein has the potential to be turned into a potent new drug. This kind of research demands enormous computing power.
Researchers in Europe and China contributed four different docking tools -- programs that calculate bonding between a small molecule and a particular protein. Each program used a different approach and produced somewhat different results.
The researchers then examined millions of molecules to see if they held promise against malaria or the H5N1 bird flu virus. By combining the results of the four different simulations, they were able to identify promising molecules more efficiently.
"Making the outcomes of these different docking tools comparable is very new," says Kalb.
The four-pronged approach produced promising results. The BRIDGE infrastructure has already been adopted in Egypt to target the malaria parasite.
BRIDGE was also used to solve a complex aeronautic problem -- designing and positioning wing flaps to maximise lift and minimise noise as an aircraft lands.
Like drug-discovery, these aerodynamic simulations required huge computational resources. In addition, because different parts of each simulation took place in different research centres, optimising the flow of work from centre to centre was also challenging.
The BRIDGE team was able to meet these challenges, carry out intensive distributed computations, and determine optimal wing flap parameters. "It proved to be an effective method for solving multi-objective and multi-disciplinary optimisation in aircraft design," Kalb says.
Weather data on the fly
Weather and climate represent a third area where international cooperation is vital. The BRIDGE researchers set out to link three large meteorological databases located in Europe, North America and Asia.
The key challenge they faced with this project was to handle enormous volumes of data efficiently.
"You could do a calculation in the United States and transfer the results to Europe, or you could fetch the data from the USA and do the calculations here," says Kalb. "The best way to do it depends on what calculation and what data and what's the best available way to transfer the data from place to place. Bridge does all this on the fly."
"Because there was a big organisation behind it, and our work fits very well, it was taken up right away," says Kalb. "I believe that meteorologists are already using it to access data and perform certain calculations."
To Kalb, the importance of what BRIDGE accomplished goes far beyond any single piece of research. He feels that the project has built the foundation for the kind of multinational collaboration that is needed to tackle global problems.
"Problems like energy and climate change can only be attacked or really solved with efforts from different players around the world, and we've built a platform to do that," he says. We proved that this is feasible and useful. Now it's time for other people to jump on this, develop it further, and use it."
The BRIDGE project received funding from the Sixth Framework Programme for research.
ScienceDaily (Jan. 15, 2010) — Grid computing can jet-propel research and development. An EU-funded programme that lets European and Chinese grids work together has already produced results in aircraft design, drug development and weather prediction.
In 2007, the EU-funded project, BRIDGE (for Bilateral Research and Industrial development enhancing and integrating Grid Enabled technologies -- see: http://www.bridge-grid.eu/), set out to link European and Chinese computing grids and enable researchers to carry out joint research.
The project was inspired by the realisation that China is rapidly becoming a world leader in research and development, as well as a booming market for European products. Developing the infrastructure to link computing grids was seen as a key step towards future scientific and industrial cooperation.
"If Europe does not want to lose ground, the response can only be to synchronise with these developments," says Gilbert Kalb, BRIDGE project coordinator.
Building a shared infrastructure
The BRIDGE team's first challenge was to make the software systems that manage the European and Chinese grids compatible. The European Grid infrastructure, GRIA, and the Chinese system, CNGrid GOS, provide comparable services, but are organised differently.
The team were able to get GRIA and GOS to work together by building a new software superstructure to access them and tap their capabilities. The system included new gateways into the two grids, plus a shared platform to manage overall workflow, access needed applications, and translate higher-level commands into steps that each grid could carry out.
Not surprisingly, security was an important consideration on both sides. Kalb says that many or the scientific and industrial problems that BRIDGE was developed to address require intensive cooperation, yet involve highly sensitive information.
BRIDGE resolved this issue by letting selected processes remain private. That allows one group to contribute data or results to all collaborating parties without having to share proprietary software or analytic tools.
"You can interface in terms of the input and the output, while the algorithms remain hidden," says Kalb.
Putting BRIDGE to work
The BRIDGE team tested the intercontinental grid they built by attacking three problems, each of which made different demands on the system.
Discovering new drugs remains an extremely costly process. One way to speed research is to use computers to simulate the chemical fit between millions of small molecules and proteins that play vital roles in disease-causing organisms. A molecule that binds strongly to a key protein has the potential to be turned into a potent new drug. This kind of research demands enormous computing power.
Researchers in Europe and China contributed four different docking tools -- programs that calculate bonding between a small molecule and a particular protein. Each program used a different approach and produced somewhat different results.
The researchers then examined millions of molecules to see if they held promise against malaria or the H5N1 bird flu virus. By combining the results of the four different simulations, they were able to identify promising molecules more efficiently.
"Making the outcomes of these different docking tools comparable is very new," says Kalb.
The four-pronged approach produced promising results. The BRIDGE infrastructure has already been adopted in Egypt to target the malaria parasite.
BRIDGE was also used to solve a complex aeronautic problem -- designing and positioning wing flaps to maximise lift and minimise noise as an aircraft lands.
Like drug-discovery, these aerodynamic simulations required huge computational resources. In addition, because different parts of each simulation took place in different research centres, optimising the flow of work from centre to centre was also challenging.
The BRIDGE team was able to meet these challenges, carry out intensive distributed computations, and determine optimal wing flap parameters. "It proved to be an effective method for solving multi-objective and multi-disciplinary optimisation in aircraft design," Kalb says.
Weather data on the fly
Weather and climate represent a third area where international cooperation is vital. The BRIDGE researchers set out to link three large meteorological databases located in Europe, North America and Asia.
The key challenge they faced with this project was to handle enormous volumes of data efficiently.
"You could do a calculation in the United States and transfer the results to Europe, or you could fetch the data from the USA and do the calculations here," says Kalb. "The best way to do it depends on what calculation and what data and what's the best available way to transfer the data from place to place. Bridge does all this on the fly."
"Because there was a big organisation behind it, and our work fits very well, it was taken up right away," says Kalb. "I believe that meteorologists are already using it to access data and perform certain calculations."
To Kalb, the importance of what BRIDGE accomplished goes far beyond any single piece of research. He feels that the project has built the foundation for the kind of multinational collaboration that is needed to tackle global problems.
"Problems like energy and climate change can only be attacked or really solved with efforts from different players around the world, and we've built a platform to do that," he says. We proved that this is feasible and useful. Now it's time for other people to jump on this, develop it further, and use it."
The BRIDGE project received funding from the Sixth Framework Programme for research.
Science and Engineering Indicators 2010
Science and Engineering Indicators 2010
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
ScienceDaily (Jan. 15, 2010) — The state of the science and engineering (S&E) enterprise in America is strong, yet its lead is slipping, according to data released at the White House January 15 by the National Science Board (NSB). Prepared biennially and delivered to the President and Congress on even numbered years by Jan. 15 as statutorily mandated, Science and Engineering Indicators (SEI) provides information on the scope, quality and vitality of America's science and engineering enterprise. SEI 2010 sheds light on America's position in the global economy.
"The data begin to tell a worrisome story," said Kei Koizumi, assistant director for federal research and development (R&D)in the President's Office of Science and Technology Policy (OSTP). Calling SEI 2010 a "State of the Union on science, technology, engineering and mathematics," he noted that quot;U.S. dominance has eroded significantly."
Koizumi and OSTP hosted the public rollout at which NSB Chairman Steven Beering, National Science Foundation (NSF) Director Arden L. Bement, Jr., and NSB members presented SEI 2010 data and described a mixed picture. NSB's SEI Committee Chairman Lou Lanzerotti noted the good news for those in the S&E community about public attitudes, "Scientists are about the same as firefighters in terms of prestige," he said. His presentation focused attention on NSB's Digest, also released January 15, highlighting important trends and data points from across SEI 2010.
Over the past decade, R&D intensity--how much of a country's economic activity or gross domestic product is expended on R&D--has grown considerably in Asia, while remaining steady in the U.S. Annual growth of R&D expenditures in the U.S. averaged 5 to 6 percent while in Asia, it has skyrocketed. In some Asian countries, R&D growth rate is two, three, even four, times that of the U.S.
In terms of R&D expenditures as a share of economic output, while Japan has surpassed the U.S. for quite some time, South Korea is now in the lead--ahead of the U.S. and Japan. And why does this matter? Investment in R&D is a major driver of innovation, which builds on new knowledge and technologies, contributes to national competitiveness and furthers social welfare. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other national goals.
NSB SEI 2010 Committee Member Jose-Marie Griffiths discussed another key indicator: intellectual research outputs. "While the U.S. continues to lead the world in research publications, China has become the second most prolific contributor." China's rapidly developing science base now produces 8 percent of the world's research publications, up from its just 2 percent of the world's share in 1995, when it ranked 14th.
Patents are another measure of valuable contributions to knowledge and inventions to societies. Inventors from around the globe seek patent protection in the U.S. U.S. patents awarded to foreign inventors offer a broad indication of the distribution of inventive activity around the world. While inventors in the U.S., the European Union (EU) and Japan produce almost all of these patents, and U.S. patenting by Chinese and Indian inventors remains modest, the number of patents earned by Asian inventors is on the rise, driven by activity in Taiwan and South Korea.
The Digest contains these and other key indicators, such as the globalization of capability; funding, performance and portfolio of U.S. R&D trends; and the composition of the U.S. S&E workforce. What's more, the Digest is electronically linked with detailed data tables and discussions in the main volumes of SEI. It can also be downloaded to laptops, iPods or other devices. "This makes the data much more accessible and digestable to policymakers, as well as to members of the general public who may wish to read about and understand the data that describe the state of their economy," said Lanzerotti.
Calling SEI a "biennial production and a daily source of pride for NSF," Bement characterized it as a guide to the future. "It is not just where we stand; it's about where we're heading," he said, quoting 19th century British scientist Lord Kelvin, "'If you cannot measure it, you cannot improve it.'"
Representing OSTP Director John Holdren and his OSTP colleagues, in closing Koizumi said, "We promise to put your work to good use."
SEI is prepared by NSF's Division of Science Resources Statistics (SRS) on behalf of the National Science Board. The publication is subject to extensive review by outside experts, interested federal agencies, Board members and SRS internal reviewers for accuracy, coverage and balance.
In further carrying out its responsibility to advise the President and Congress on science and engineering issues, in February, the NSB will release a companion, policy piece, Globalization of Science and Engineering Research.
Will China rule the world?
Will China rule the world?
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
By Dani Rodrik
First Published: January 13, 2010
CAMBRIDGE – Thirty years ago, China had a tiny footprint on the global economy and little influence outside its borders, save for a few countries with which it had close political and military relationships. Today, the country is a remarkable economic power: the world’s manufacturing workshop, its foremost financier, a leading investor across the globe from Africa to Latin America, and, increasingly, a major source of research and development.
The Chinese government sits atop an astonishing level of foreign reserves – greater than $2 trillion. There is not a single business anywhere in the world that has not felt China’s impact, either as a low-cost supplier, or more threateningly, as a formidable competitor.
China is still a poor country. Although average incomes have risen very rapidly in recent decades, they still stand at between one-seventh and one-eighth the levels in the United States – lower than in Turkey or Colombia and not much higher than in El Salvador or Egypt. While coastal China and its major metropolises evince tremendous wealth, large swaths of Western China remain mired in poverty. Nevertheless, China’s economy is projected to surpass that of the US in size sometime in the next two decades.
Meanwhile, the US, the world’s sole economic hyper-power until recently, remains a diminished giant. It stands humbled by its foreign-policy blunders and a massive financial crisis. Its credibility after the disastrous invasion of Iraq is at an all-time low, notwithstanding the global sympathy for President Barack Obama, and its economic model is in tatters. The once-almighty dollar totters at the mercy of China and the oil-rich states.
All of which raises the question of whether China will eventually replace the US as the world’s hegemon, the global economy’s rule setter and enforcer. In a fascinating new book, revealingly titled When China Rules the World , the British scholar and journalist Martin Jacques is unequivocal: if you think China will be integrated smoothly into a liberal, capitalist, and democratic world system, Jacques argues, you are in for a big surprise. Not only is China the next economic superpower, but the world order that it will construct will look very different from what we have had under American leadership.
Americans and Europeans blithely assume that China will become more like them as its economy develops and its population gets richer. This is a mirage, Jacques says. The Chinese and their government are wedded to a different conception of society and polity: community-based rather than individualist, state-centric rather than liberal, authoritarian rather than democratic. China has 2,000 years of history as a distinct civilization from which to draw strength. It will not simply fold under Western values and institutions.
A world order centered on China will reflect Chinese values rather than Western ones, Jacques argues. Beijing will overshadow New York, the renminbi will replace the dollar, Mandarin will take over from English, and schoolchildren around the world will learn about Zheng He’s voyages of discovery along the Eastern coast of Africa rather than about Vasco de Gama or Christopher Columbus.
Gone will be the evangelism of markets and democracy. China is much less likely to interfere in the internal affairs of sovereign states. But, in return, it will demand that smaller, less powerful states explicitly recognize China’s primacy (just as in the tributary systems of old).
Before any of this comes to pass, however, China will have to continue its rapid economic growth and maintain its social cohesion and political unity. None of this is guaranteed. Beneath China’s powerful economic dynamo lie deep tensions, inequalities, and cleavages that could well derail a smooth progression to global hegemony. Throughout its long history, centrifugal forces have often pushed the country into disarray and disintegration.
China’s stability hinges critically on its government’s ability to deliver steady economic gains to the vast majority of the population. China is the only country in the world where anything less than 8% growth year after year is believed to be dangerous because it would unleash social unrest. Most of the rest of the world only dreams about growth at that rate, which speaks volumes about the underlying fragility of the Chinese system.
The authoritarian nature of the political regime is at the core of this fragility. It allows only repression when the government faces protests and opposition outside the established channels.
The trouble is that it will become increasingly difficult for China to maintain the kind of growth that it has experienced in recent years. China’s growth currently relies on an undervalued currency and a huge trade surplus. This is unsustainable, and sooner or later it will precipitate a major confrontation with the US (and Europe). There are no easy ways out of this dilemma. China will likely have to settle for lower growth.
If China surmounts these hurdles and does eventually become the world’s predominant economic power, globalization will, indeed, take on Chinese characteristics. Democracy and human rights will then likely lose their luster as global norms. That is the bad news.
The good news is that a Chinese global order will display greater respect for national sovereignty and more tolerance for national diversity. There will be greater room for experimentation with different economic models.
Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
This commentary is publioshed by DAILY NEWS EGYPT in collaboration with Project Syndicate (www.project-syndicate.org).
Google banned 30,000 advertisers post Economic Resurrection, Ad police suddenly affordable
Google banned 30,000 advertisers post Economic Resurrection
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Ad police suddenly affordable
By Cade Metz in San Francisco • Get more from this author
Posted in Music and Media, 15th January 2010 21:40 GMT
In the fall of 2008, when the worldwide economy began to melt, Google responded by shamelessly expanding ad coverage on its web-dominating search engine, letting more ads onto more pages. But now that the economy has recovered, the web giant has suddenly become more much vigilant in its efforts to weed out what it considers low-quality advertising.
According to new data from AdGooRoo - a search marketing consultant that tracks search ads from a network of servers across the globe - Google permanently banned 30,000 accounts from its AdWords ad system at the beginning of December. That's roughly 5.3 per cent of its active advertisers. Ad coverage dipped nearly 10 per cent in the wake of the mass axing, and yet AdGooRoo's data indicates that Google's revenues surged in the fourth quarter, thanks to increased competition for placement among the web's top ad spenders.
Click here to find out more!
In other words, when the economy was in the tank, Google needed all the extra revenue it could get. But now that the economy is healthy again, it can step up efforts up to remove what it sees as inappropriate ads. The big boys are spending more, so it doesn't need as many clicks to boost the bottom line. What's more, by shrinking ad coverage, Google can actually drive more traffic to the big spenders. If you cut 30,000 advertisers, those still on the search engine get more clicks - and the more clicks, the more those big spenders pay.
Google announces its fourth quarter financials next week, and AdGooRoo data is typically a reliable indicator of what's to come. "Our ad coverage metric confirms that something big went down at the Googleplex last month. Ad coverage, which has been steadily climbing for the past 12 months took a sudden and precipitous dive in December," reads the firms latest search-ad report, due out on Monday. "Ordinarily, this would foreshadow a weak quarter, but we believe that this small drop will be more than offset by strong ad revenues."
Two years ago, in January 2008, Google famously began an effort to shrink ad coverage on the world's most popular search engine. This continued through the middle of 2008, and when the subject came up during Google's quarterly earnings call that July, senior vice president Jonathan Rosenberg attributed the shrinkage to Google's "continued focus on quality" advertising.
"[Google co-founder] Larry [Page] says we'd be better off showing just one ad [per page] - the perfect ad," Rosenberg said, indicating that coverage would continue to shrink.
But then he was interrupted by Google's other co-founder, Sergey Brin, who piped up with what can only be described as a shocking moment of candor. "There is some evidence that we've been a little bit more aggressive in decreasing coverage than we ought to have been," Brin said. "We've been reexamining some of that."
The economy was softening, and sure enough, coverage soon began to expand. According to AdGooRoo's numbers, Google's search engine showed 57 per cent more ads per page in the fourth quarter of 2008 than it did in Q3, as the economy imploded following the infamous demise of Wall Street stalwarts Lehman Brothers and Merrill Lynch.
Google had made significant changes to AdWords that fall, and naturally it said this would also improve ad "quality." So, whether Google is shrinking ad coverage or expanding it, the only aim to provide the world with better ads.
But surely it's obvious that Google is dialing up and down as the economy rises and falls. And now that the economy is on the rise again, the company has renewed efforts to crack down on ads it doesn't like. Google started banning advertisers en masse in early October - just as it was about to announce that the economic meltdown was over - and this house-cleaning came to head on December 3.
The official line is what you'd expect from the Mountain View Chocolate Factory. "Google is constantly working to ensure that we’re showing ads to our users that are relevant, in accordance with our ad policies, and safe for users. To that end, we perform regular reviews, using both manual and automated processes, in order to detect and disable ads that violate our policies," it told Search Engine Land.
But surely, the timing is no coincidence. ®
Thursday, January 14, 2010
Challenging China
Chinese surprise at Google pull-out threat
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
By Chris Hogg
BBC News, Shanghai
Google's warning that it might pull out of China over cyber attacks has surprised human rights activists here.
They seem unfazed that China is accused of trying to hack into their Gmail accounts. But a major foreign firm like Google being prepared to speak out and challenge the government so directly is unusual.
The Chinese authorities will be infuriated that Google has made its announcement before negotiations with officials have got under way.
China has so far said little publicly in response.
I would bet on a harsh reaction from the Chinese government
Dan Sefarty, Viadeo
An unnamed official quoted by the state news agency Xinhua said only that the authorities were trying to find out more about Google's suggestion it might leave the country.
The company's main Chinese rival Baidu is less reticent. In a blog post that has since been taken down, the firm's chief architect Sun Yunfeng claimed Google was just trying to play down its market failure.
"Would Google top executives still proclaim that they would 'do no evil'," he said, quoting the company's code of conduct, "and quit China if they had taken 80% of China's search market?"
Google's market share is estimated to be around 30% in China, about half the size of Baidu's, the search engine market leader.
The senior Baidu executive said the American company's move would "satisfy the imagination of those Westerners who have never been to China and understand nothing of China but still like to point fingers at China".
'Mismatch' in perception
Others in the technology sector here see this differently.
google.cn homepage ( archive image)
Gmail accounts of rights activists have reportedly been accessed
Dan Sefarty heads Viadeo, the firm that owns the Chinese social networking site Tianji.com.
"Google is rare," he says. "It's a US company succeeding in China. It has impressive market share and is atypical among other foreign companies who try to get into this very tough market."
He warns that Baidu has strong links with the government and may be lobbying hard to gain business advantage from this row.
"I would bet on a harsh reaction from the Chinese government," he says. "Look at what they have done with Facebook and Twitter, which have been blocked in China for six to nine months now."
Opinion is divided over whether or not Google really plans to withdraw from the country, the world's largest internet market.
Duncan Clark, an analyst at the Beijing hi-tech consultancy BDA, says he sees a "mismatch" in perception between the Chinese authorities and the foreign firms doing business here.
"People here think no-one can do without China, and I think now some companies are thinking no-one can deal with China," he told the French news agency AFP.
"There is a feeling that China is emboldened and that they don't need to have the same sort of dialogue [as before]," he said.
Google's senior US executives are well aware of the Chinese preference for gradual change, and also of the authorities' likely resistance on a matter of such ideological importance to them as control of the internet, an arena described by a senior public security official just a few weeks ago as a "battlefield".
Some analysts see Google's announcement as a gambit for what will be extremely tough negotiations with the Chinese, rather than an ultimatum.
But others suggest that the more Google bent towards the demands of the Chinese government, the more harm was done to its reputation overseas, and at some point it had to make a stand.
'Heroic' decision?
Whether you regard Google's market share as impressive or disappointing, compared to its dominance elsewhere, there is little doubt it is not a household name in China in the same way that it is abroad.
A Chinese flag flutters outside Google's China headquarters in Beijing
Google has about 700 staff in its China offices
But Hu Li, a student in Beijing, told the BBC he admired what he called the company's "heroic" decision to offer an unfiltered service, and hailed the announcement to pull out if it could not reach its objective.
Some people even laid flowers outside the company's Beijing headquarters, in the hi-tech Haidian district, as a mark of respect.
But this sentiment was certainly not shared by everyone.
Another man, an IT worker who would only give his surname, Zhong, said the American firm should respect China's situation regarding this kind of issue.
"China has been using censorship for a long time," he said. "Any change can only happen slowly - it won't happen overnight."
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